The politics of pricing

The fear of "difficult conversations with clients".

As anyone in business knows, working out how much to charge for your goods or services is a perpetual conundrum. Charge too much and you risk losing customers; charge too little and you might not break even. It’s a difficult balance to strike at the best of times, but the present economic climate makes the challenge even harder. Deciding what the price of your services should be – and how you charge for those services – is one of the most important decisions that you can make when you run your own practice. So you need to do your utmost to get it right.

Charging per hour has long been the tried-and-tested billing model for the accountancy profession, and with good reason. The principle is that the fairest and most transparent way to recompense someone is by paying them for their time – hence the model is also used by a range of other professionals from lawyers through to IT contractors.

Traditionally, the hourly rates charged by accountancy firms tended to be calculated on the basis that a third of the fee would cover salary costs (hence it would vary according to the seniority and expertise of the staff member), a third would cover overheads and third would be profit. While this breakdown does not necessarily hold true now – the percentage of the fee needed to cover labour has increased, for example – it helps to explain why the charge-out rates of some Big Four partners are more than £1,000 an hour.

So far, so good. Except that from the client’s point of view, charging per hour does not necessarily seem that transparent. After all, they are not sitting in your office, watching over your staff while the work gets done, so they don’t know how efficient or otherwise your practice is. There is also the risk that they will be presented with a bill that is far larger than they expected at the end of the job, which is a sure-fire way to lose their business.

This piece first appeared here.

Photograph: Getty Images

This is a news story from economia.

Photo: Getty
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The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.